Taxation Taxes In this world nothing is certain

Taxes “In this world, nothing is certain but death and taxes. ” – Ben

Adam Smith’s Principles on Taxation 1. 2. 3. Wealth of Nations , 1776(father of

Who should pay and why? Ability-to-pay principle – people should be taxed according to

Warm up 1/16/15 What are the 3 principles of taxation that Adam Smith believed

Who should pay and why? Benefits received principle – if you benefit from a

Tax Structure 1. Proportional Tax– takes the same share of income at all income

2. Progressive Tax– takes a larger share of income as income increases (e. g.

3. Regressive Tax– takes a smaller share of income as income increases (e. g.

Tax Base and Tax Rate Tax Base: the thing that is taxed Ex. Property,

Proportional Progressive Regressive XXXXXX Excise/Luxury Taxes (Sin taxes) Toll Tax Social Security Taxes Estate/Inheritance

Proportional Progressive Regressive Property taxes Income taxes Sales User Fees/Tolls Luxury Excise Payroll (Medicare)

Copy and Complete Tax Base Tax Structure Income tax Personal income progressive Social Sec

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Taxation

Taxes “In this world, nothing is certain but death and taxes. ” – Ben Franklin “Taxation is the price we pay for civilization. ” – SC Justice Oliver Wendell Holmes “No taxation without representation. ” – framers of the US Constitution

Adam Smith’s Principles on Taxation 1. 2. 3. Wealth of Nations , 1776(father of modern capitalism) Equity – believed the rich should pay a higher tax than the poor Simplicity – tax laws should be straight forward Efficiency – maximum gain for gov’t while inflicting minimal loss on taxpayers

Who should pay and why? Ability-to-pay principle – people should be taxed according to their income (rich taxed more and poor taxed less)…. Fed/state income taxes are based on this

Warm up 1/16/15 What are the 3 principles of taxation that Adam Smith believed are essential? What are the 6 purposes of government?

Who should pay and why? Benefits received principle – if you benefit from a program, you should pay for it (e. g. if you drive you should pay for the upkeep of our highway system)

Tax Structure 1. Proportional Tax– takes the same share of income at all income levels (e. g. Property/School tax)

2. Progressive Tax– takes a larger share of income as income increases (e. g. Income Tax)

3. Regressive Tax– takes a smaller share of income as income increases (e. g. Sales Tax- poor pay more of their income in sales tax than the rich)

Tax Base and Tax Rate Tax Base: the thing that is taxed Ex. Property, good, income, revenues Tax Rate: the percentage of income- of value of good/service- that is taxed Ex. Income tax rate=20% you pay 20% of income in taxes. Ex. If Sales tax is 6%, you pay 6% of total purchase in sales tax.

Proportional Progressive Regressive XXXXXX Excise/Luxury Taxes (Sin taxes) Toll Tax Social Security Taxes Estate/Inheritance Taxes Property Taxes Sales Taxes Income Taxes

Proportional Progressive Regressive Property taxes Income taxes Sales User Fees/Tolls Luxury Excise Payroll (Medicare) Estate/Inheritance Payroll (Social Security) Excise/Luxury Taxes (Sin taxes) User fees/tolls Payroll Taxes Estate/Inheritance Taxes Property Taxes Sales Taxes Income Taxes

Copy and Complete Tax Base Tax Structure Income tax Personal income progressive Social Sec tax Home property tax 5% sales tax Corporate Income tax Tax on jewelry Public park entry fee Toll Road Tax

Copy and Complete Tax Base Tax Structure Income tax Personal income progressive Social Sec tax Personal income regressive Home property tax Property proportional 5% sales tax Goods/ services regressive Corporate Income tax revenues progressive Tax on jewelry good progressive Public park entry fee Service proportional Estate tax Income progressive Toll Road Tax service proportional Is tax Fair? Why?